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EUROPEAN CENTRAL BANK MONTHLY BULLETIN

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MONTHLY BULLETIN

OCTOBER

10 12011

MONTHLY BULLETIN

OCTOBER 2011

In 2011 all ECBpublicationsfeature a motiftaken fromthe €100 banknote.

© European Central Bank, 2011

Address

Kaiserstrasse 29

60311 Frankfurt am Main

Germany

Postal address

Postfach 16 03 19

60066 Frankfurt am Main

Germany

Telephone

+49 69 1344 0

Website

http://www.ecb.europa.eu Fax +49 69 1344 6000

This Bulletin was produced under the

responsibility of the Executive Board of the ECB. Translations are prepared and published by the national central banks.

All rights reserved. Reproduction for

educational and non-commercial purposes is permitted provided that the source is acknowledged.

The cut-off date for the statistics included

in this issue was 5 October 2011.

ISSN 1561-0136 (print)

ISSN 1725-2822 (online)

3 ECB

Monthly Bulletin

October 2011

EDITORIAL 5

ECONOMIC AND MONETARY

DEVELOPMENTS

The external environment of the euro area 9

Monetary and Þ nancial developments 21

Prices and costs 49

Output, demand and the labour market 58

Boxes:

1

Financialisation of commodities

and cross-market returns 13 2

Recent developments in the exchange

rate of the Swiss franc against the euro 18 3

The results of the euro area bank

lending survey for the third quarter of 2011 25
4

TARGET2 balances of national

central banks in the euro area 35
5

Private sector involvement

and its nancial stability implications 43
6

The implications of external price

pressures for euro area HICP in

ß ation

50

ARTICLES

The supply of money - bank behaviour

and the implications for monetary analysis 63

Structural features of the distributive

trades sectors and their impact on euro area price developments 81
The

Þ nancial crisis in the light of the

euro area accounts: a ß ow-of-funds perspective 99

EURO AREA STATISTICS S1

ANNEXES

Chronology of monetary policy

measures of the Eurosystem I

Publications produced by the European

Central Bank

V

Glossary VII

CONTENTS

4 ECB

Monthly Bulletin

October 2011

ABBREVIATIONS

COUNTRIES LU Luxembourg

BE Belgium HU Hungary

BG Bulgaria MT Malta

CZ Czech Republic NL Netherlands

DK Denmark AT Austria

DE Germany PL Poland

EE Estonia PT Portugal

IE Ireland RO Romania

GR Greece SI Slovenia

ES Spain SK Slovakia

FR France FI Finland

IT Italy SE Sweden

CY Cyprus UK United Kingdom

LV Latvia JP Japan

LT Lithuania US United States

OTHERS

BIS Bank for International Settlements

b.o.p. balance of payments BPM5 IMF Balance of Payments Manual (5th edition)

CD certi

Þ cate of deposit

c.i.f. cost, insurance and freight at the importer's border

CPI Consumer Price Index

ECB European Central Bank

EER effective exchange rate

EMI European Monetary Institute

EMU Economic and Monetary Union

ESA 95 European System of Accounts 1995

ESCB European System of Central Banks

EU European Union

EUR euro

f.o.b. free on board at the exporter's border

GDP gross domestic product

HICP Harmonised Index of Consumer Prices

HWWI Hamburg Institute of International Economics

ILO International Labour Organization

IMF International Monetary Fund

MFI monetary

Þ nancial institution

NACE statistical classiÞ cation of economic activities in the European Union

NCB national central bank

OECD Organisation for Economic Co-operation and Development

PPI Producer Price Index

SITC Rev. 4 Standard International Trade ClassiÞ cation (revision 4)

ULCM unit labour costs in manufacturing

ULCT unit labour costs in the total economy

In accordance with EU practice, the EU countries are listed in this Bull etin using the alphabetical order of the country names in the national languages. 5 ECB

Monthly Bulletin

October 2011

Based on its regular economic and monetary

analyses, the Governing Council decided at its meeting on 6 October 2011 to keep the key

ECB interest rates unchanged. Inß ation has

remained elevated and incoming information has con

Þ rmed that inß ation is likely to stay

above 2% over the months ahead, but to decline thereafter. At the same time, the underlying pace of monetary expansion continues to be moderate. Ongoing tensions in Þ nancial markets and unfavourable effects on Þ nancing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensiÞ ed downside risks. At the same time, short-term interest rates remain low. It remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a Þ rm anchoring of inß ation expectations in the euro area in line with the Governing Council's aim of maintaining inß ation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.

The Governing Council also decided on the

details of the reÞ nancing operations from

October 2011 to 10 July 2012, notably to conduct

two longer-term reÞ nancing operations - one with a maturity of approximately 12 months in

October 2011 and another with a maturity of

approximately 13 months in December 2011 - and to continue to apply the Þ xed rate tender procedure with full allotment in all reÞ nancing operations. In addition, the Governing Council decided to launch a new covered bond purchase programme in November 2011. 1

The provision

of liquidity and the allotment modes for re

Þ nancing operations will continue to ensure

that euro area banks are not constrained on the liquidity side. All the non-standard measures taken during the period of acute Þ nancial market tensions are, by construction, temporary

in nature.As regards the economic analysis, real GDP growth in the euro area, after slowing in the second quarter of 2011 to 0.2% quarter on quarter, is now expected to be very moderate in the second half of this year. In particular, a number of factors seem to be dampening the underlying growth momentum in the euro area, including a moderation in the pace of global demand, falling consumer and business conÞ dence, and unfavourable effects on

Þ nancing conditions resulting from ongoing

tensions in a number of euro area sovereign debt markets. At the same time, the Governing

Council continues to expect euro area economic

activity to beneÞ t from continued positive growth in the emerging market economies, as well as from the low short-term interest rates and the various measures taken to support the functioning of the Þ nancial sector.

In the Governing Council's assessment, the

risks to the economic outlook for the euro area remain on the downside in an environment of particularly high uncertainty. Downside risks notably relate to the ongoing tensions in some segments of the Þ nancial markets in the euro area and at the global level, as well as to the potential for these pressures to further spill over into the euro area real economy. They also relate to the still high energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.

With regard to price developments, euro

area annual HICP inß ation was 3.0% in

September 2011, according to Eurostat's ß ash

estimate, after 2.5% in August. Inß ation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, inß ation rates are likely to stay clearly above 2% over the coming months, but to decline thereafter. This pattern reß ects the expectation of relatively stable wage growth developments in the context of moderate economic growth. For further details, see the press releases of 6 October 2011 "ECB 1 announces details of reÞ nancing operations from October 2011 to

10 July 2012" and "ECB announces new covered bond purchase

programme".

EDITORIAL

6 ECB

Monthly Bulletin

October 2011

The Governing Council continues to view the

risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to the possibility of increases in indirect taxes and administered prices, owing to the need for Þ scal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.

Turning to the monetary analysis, the annual

growth rate of M3 was 2.8% in August 2011, up from 2.1% in July. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, was 2.8% in August, after 2.6% in July. A number of factors, possibly related to the intensiÞ cation of tensions in some

Þ nancial markets, could have had an upward

effect on the components of M3. In particular, sizeable inß ows into overnight deposits and money market fund shares/units, as well as a substantial inß ow into repurchase agreements, appear to have driven monetary developments in

August. The in

ß ow into repurchase agreements

mainly reß ected secured lending in the interbank market, which was increasingly settled via central counterparties that are allocated to the money-holding sector. Overall, M3 growth was driven in particular by the increase in the annual growth rate of M1 from 1.0% in July to 1.7% in August and the increase in the annual growth rate of marketable instruments.

On the counterpart side, the annual growth rate

of loans to non-Þ nancial corporations and to households in August, both adjusted for loan sales and securitisation, remained unchanged from July, at 2.2% and 2.7% respectively. Taking the appropriate medium-term perspective, trends in broad money and loan growth have broadly stabilised over recent months. Overall, the underlying pace of monetary expansion thus remains moderate.

The situation of the banking sector calls for

particular attention, taking into account thequotesdbs_dbs32.pdfusesText_38

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